Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Does an ELHT lose its status as an ELHT when the employer becomes bankrupt
Position: no
Reasons: A trust will be considered to be an ELHT for a taxation year, where throughout the year, the terms that govern the trust meet the requirements of paragraphs 144.1(2)(a) to (i). The trust and employer are separate legal entities. The trust would eventually be dissolved and its assets distributed to the beneficiaries.
XXXXXXXXXX
2011-041981
A. Townsend
February 13, 2012
Dear XXXXXXXXXX :
Re : Employee Life and Health Trust ("ELHT") - bankrupt employer
I am writing in response to your email of September 2, 2011 asking whether an ELHT would lose its tax status as an ELHT if subsequent to the creation of the trust, the employer becomes bankrupt and is dissolved.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
Section 144.1 allows an employer to set up an ELHT to fund designated employee benefits for the employer's employees, the employees' spouses or common-law partners, and related members of the employees' household. An "employee" is defined in section 144.1 for purposes of the ELHT legislation, to mean a current or former employee of an employer.
A trust that is established for employees of one or more employers is considered to be an ELHT for a taxation year if, throughout the taxation year, under the terms that govern the trust, it meets all of the requirements as set out in paragraphs (a) to (i). Although the ELHT is dependant on the employers for funding, the bankruptcy of an employer will not result in the trust losing its tax status as an ELHT, provided it meets all of the requirements in subsection 144.1(2)(a) to (i).
We trust these comments are helpful.
Yours truly,
Doug Watson
For Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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